Duke Energy customers could pay for S.C. nuclear plant even if it’s not built

Duke Energy customers could pay for S.C. nuclear plant even if it’s not built

Duke Energy has the authority to seek recovery of tens of millions of dollars from South Carolina customers for money it has already spent on a proposed nuclear plant near Gaffney, whether or not the plant is ever built.

The authority rests under the same 2007 state law that has left South Carolina Electric and Gas ratepayers to foot the bill for the failed VC Summer Nuclear Station near Jenkinsville north of Columbia.

Duke is working with the same bankrupt company that was building the VC Summer reactors.

Duke Energy has not said whether it will seek to charge customers to recover a portion of the nearly $542 million it has spent so far to purchase land, perform engineering and seek approval from regulators to build W.S. Lee III Nuclear Station near Gaffney in Cherokee County.

In 2007, the state Legislature easily passed the Base Load Review Act and gave electrical utilities the ability to charge customers for money spent on construction costs for large-scale projects. That law also gives utilities the ability to ask for customers to pay for pre-construction costs for large projects like nuclear stations even if the project is never built. Utilities said charging customers upfront would save interest and lower the project cost in the long run.

Duke Energy could seek to recover from customers nearly $232 million of the $542 million it has spent on Lee Nuclear Station as of June 30, according to its project development report filed with the North Carolina Utilities Commission. Of that, the company could ask the South Carolina Public Service Commission to allow it to tack on a portion of those costs, anywhere from 25 to 30 percent, onto the bills of its South Carolina customers, according to the South Carolina Office of Regulatory Staff, the state office charged with looking out for the public’s interest in utilities cases.

That would put Duke’s South Carolina ratepayers on the hook for $58 million to $69.6 million in costs sunk into the project thus far.

Customers in North Carolina may also have to pay under a similar law also passed there in 2007.

Duke has not made any requests to the Public Service Commission for any rate increases tied to the project, said Dukes Scott, ORS director.

Duke could ask for those costs to be added to bills as part of a general rate increase, Scott said. It would be up to the Public Service Commission to decide whether Duke has been prudent with the money it has spent on the project, Scott said.

Duke has not decided if it will build the Lee Nuclear Station but it did receive its combined construction and operating licenses from the federal Nuclear Regulatory Commission in late 2016, said Ryan Mosier, Duke Energy spokesman.

Whether Duke decides to build nuclear plants in the future depends in part on its cost recovery options, he said.

“Our decision on whether to build new generation in the future will be based on what is in the best interest of our customers, and on factors such as energy needs, project costs, environmental regulations, feasibility, natural gas prices, existing or future legislative provision for cost recovery and more,” Mosier said.

He said Duke is following the developments this week at V.C. Summer and will gauge any impacts to the company’s future generation plans.

VC Summer fallout

On Monday, state-owned utility Santee Cooper and its partner in the VC Summer project, SCE&G, decided to abandon construction of two nuclear reactor units at VC Summer three months after Westinghouse, the company contracted to build the units, filed for chapter 11 bankruptcy due to ballooning losses on its nuclear projects at Summer and Plant Vogtle in Augusta, Ga.

Summer was years behind schedule and its units wouldn’t have been completed until 2022 and 2024. Initial costs for the project were estimated at $9.8 billion but have risen to at least $13.87 billion and could go much higher, utility officials have said.

SCE&G customers have largely borne the cost of delays and overruns.

SCE&G had been approved for nine rate increases for the project since its inception. Now nearly 20 percent of their customers’ bills are dedicated to the project. The company may seek to recover up to $4.9 billion from customers to pay to decommission the project, though the company has said it would use $2.2 billion from a settlement with Westinghouse’s parent company, Toshiba, to defray costs from customers.

Still, customers may end up paying for the failed project for the next 60 years after Kevin Marsh, CEO of SCANA, which owns SCE&G, briefed the Public Service Commission this week that it would need to recoup $2 billion in sunk costs from the project.

Lawmakers this week called for investigations into how the project failed and called for reforms of the Base Load Review Act and regulation agency.

A Public Utilities Review Committee will meet Aug. 23 to review the project and the Office of Regulatory Staff is reviewing the Public Service Commission’s decisions on the project.

On Friday, Senate Majority Leader Shane Massey, R-Edgefield, and Senate Minority Leader Nikki Seltzer, D-Lexington, asked President Pro Tempore Hugh Leatherman, R-Florence, to convene a special session of the General Assembly to issue a joint resolution to halt any VC Summer action until the Legislature can act during the 2018 session.

The joint letter to Leatherman said they were concerned that the utilities may seek to raise customer rates again before the Legislature has a chance to act.

“We believe South Carolinians should have an opportunity to understand what has happened, and the General Assembly should have an opportunity to evaluate the facts, corporate responsibility, and the state’s energy policy, before the utilities seek additional increases,” the letter said.

Changing the law

Last year, a coalition of businesses formed to pressure lawmakers to change the Base Load Review Act that allowed utilities to pass along project construction costs to customers before a project was complete.

The group was called the Stop the Blank Check alliance, and it sought to change the law to protect customers and shift the burden of costs onto utilities.

Frank Knapp, president of the South Carolina Small Business Chamber of Commerce and a member of the alliance, intervened in an SCE&G rate hike proceeding and negotiated a settlement to cap the amount ratepayers would be responsible for of the project costs.

He had called for changes to the Base Load Review Act. Now, he said it just needs to be done away with, a move that he said would likely spell the end of large nuclear projects in the state.

“That would be the death knell,” he said. “There’s no way Duke Energy or anybody else is going to build anything of that size anymore without the Base Load Review Act.”

He placed the blame for the current situation on the law because the Public Service Commission really couldn’t say no to the costs written by the utility.

“The law is written so that if the utility says construction costs are needed to complete the project, they almost have to say yes to it,” he said.

At the same time, SCANA was making 10-11 percent profits in the state and “had no incentive to stay under budget,” Knapp said.

If lawmakers don’t change the law, Duke Energy could use the same formula if it does decide to build Lee Nuclear Station, he said.

Lee Nuclear future

Duke Energy proposed the 2,234-megawatt station eight miles outside Gaffney in December 2007. The station’s two reactors were to be part of a wave of new reactors in a renaissance of nuclear power in the U.S.

The renaissance was led by a new way to build reactors. Westinghouse had developed its AP1000 design that would use prefabricated pieces made in a facility in Louisiana and shipped to the building site. It’s the same design that Summer and Plant Vogtle used.

But cracks had already formed years ago in the renaissance. Cost overruns, delays and pieces that needed to be rebuilt at the Louisiana plant led to Westinghouse losing $9 billion on Summer and Vogtle and declaring bankruptcy.

The NRC licenses Duke Energy received in December 2016 are for the same AP1000 reactors, Mosier said.

Nuclear energy has been a significant part of Duke Energy’s portfolio in the Carolina’s for 50 years. Duke operates six nuclear plants in the Carolinas, including the 2,554-megawatt Oconee Nuclear Station on Lake Keowee.

Duke Energy’s latest integrated resource plan, filed in 2016 with state utility commissions, says the first reactor of Lee Nuclear Station would be scheduled to come online in 2026, with a second reactor in 2028. Duke will file its 2017 resource plan in September, Mosier said.

Duke estimated the costs to build Lee Nuclear at $11 billion in 2008, he said.

Duke has not started any construction on site or hired any employees at the proposed site, he said.

“We have acquired all the necessary land that would be needed to move forward with the project if that decision is made in the future,” he said.

Scott, with ORS, said he didn’t think Duke would choose to move forward with its project considering the high costs and fallout after the failed Summer project.

Asked what Duke needed from the state to build Lee Nuclear, Scott said “a miracle.”

Shelley Robbins, energy and state policy manager at Upstate Forever, the environmental nonprofit based in Greenville, said she doesn’t see any way forward for Duke on the nuclear project.

Construction costs of a nuclear facility would come to $10 per watt of generating capacity compared to $1-$2 per watt for a natural gas facility and $2 for utility scale solar, she said.

“Unless there is some sort of new technology that is way smaller, way cheaper and way more flexible, I just don’t see how it’s even possible (to build nuclear plants),” she said.

The company’s acquisition of Piedmont Natural Gas is also a signal of a shift toward natural gas, she said.

She said it’s logical for Duke to replace the base load it would have poured into nuclear with natural gas plants.

Upstate Forever is working to create policies that allow utilities to have maximum flexibility to plan for its future electricity capacity using greener options such as radical energy efficiency and solar using battery storage, she said.

Duke has already shown a shift back toward natural gas. Later this year, it will open its $600 million, 750-megawatt W.S. Lee combined cycle plant in Anderson, Mosier said.

“In addition to the W.S. Lee combined cycle plant, we fully expect to add a combination of renewables and new natural gas facilities to our generation mix in the coming years,” he said.